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News : International Last Updated: Feb 2, 2012 - 10:36 AM


Markets: Deutsche Bank plunges to loss in Q4 2011; Baltic Dry Index sinks to 25-year low on shipping glut
By Finfacts Team
Feb 2, 2012 - 10:12 AM

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The Deutsche Bank towers in Frankfurt, seen through artist Max Bill's statue Continuity - - Durch die Statue 'Kontinuität' von Max Bill

Deutsche Bank,  Germany’s biggest bank, today reported a loss in fourth-quarter profit as Europe’s sovereign-debt crisis crimped trading and the company booked writedowns on holdings.

Net income fell to a €351m loss from €707m profit a year earlier, the company said today in a statement.

For the full year, pretax profit at the corporate and investment bank and private clients and asset management unit totaled €6.6bn in 2011 after €1bn in charges at the investment bank and €200m in “special net negative impacts” at the private and business clients division, Deutsche Bank said.

Dr. Josef Ackermann, chairman of the Management Board who is due to retire in May said: "Once again, Deutsche Bank has proved its ability to deliver substantial earnings in challenging conditions. In 2011, our classic banking business produced record earnings, thus counterbalancing the impact of weak markets in investment banking. We also significantly strengthened our capital base, boosted our liquidity reserves and reinforced our funding position. All in all, we have built an excellent platform to continue on the successful path of recent years."

Royal Dutch Shell said reported today that that its 2011 net profit surged by 54% to $30.9bn, boosted by higher energy prices. The profit after tax figure compared with net income of $20.5bn during 2010, Shell said.

Sony on Thursday more than doubled its full-year net loss forecast to $2.9bn, a day after the Japanese electronics giant said CEO Howard Stringer would resign.

Bloomberg reports that commodity shipping costs slumped to the lowest in a quarter century as a glut of new carriers overwhelmed demand at a time of slowing global economic growth.

The Baltic Dry Index (BDIY), a measure of costs across four vessel sizes, retreated 2.6% to 662 points today, according to the London-based Baltic Exchange, which publishes rates across more than 50 maritime routes. The gauge fell 61% this year and is now at its lowest since August 1986. Rates for Capesizes, the largest iron ore and coal carriers, dropped 84% since mid-December.

Stock markets rise on optimism around global manufacturing: Conall Mac Coille, chief economist at Davy comments  -- "Stock markets rose sharply yesterday (February 1st) as optimism on the prospects for global manufacturing grew following a pick-up in purchasing manager indices (PMIs) for the sector. Yesterday's releases showed that PMIs for manufacturing rose in January across China, the euro area, the UK and the US – buoying expectations that the global manufacturing sector may rebound in the first quarter. The Euro Stoxx 50 was up 2.24%, the FTSE 100 1.92% and the Dow Jones industrial average 0.7%.

With growth expectations and risk appetite improving, German bund prices fell as yields on Italian and Spanish debt reached new lows. The yield on 10-year Spanish government bonds fell to 4.85%, its lowest level since November 2010. The yield on 10-year Italian debt declined to 5.68%, it lowest level since October 2011. With the ECB's next long-term repo operation at end-February now firmly on the horizon, Ireland government bond yields have not been left behind by increased demand for sovereign debt. Yields on Irish government bonds continue to fall and are down roughly 1.8% across the curve since the beginning of January, with the yield on the benchmark seven-year bond closing at 6.8% yesterday.

Today attention will be focused on the US labour market, ahead of Friday's releases of services sector PMIs for the major economies and US non-farm payrolls for January. US initial jobless claims data released this afternoon are expected to show a marginal fall to 371,000 in the week to January 28th, maintaining their downward trend since the middle of 2011 and reinforcing the view that the labour market continues to strengthen.

Yesterday's ADP survey indicated that US employment expanded by 170,000 in January. That said, the ADP survey has been significantly stronger than the official non-farm payrolls data in recent months. So the market has taken a relatively conservative view that payrolls will grow by just 145,000 in December. Although weaker than the 200,000 jobs growth recorded in December, if realised, the market's expectation for US payrolls in January may still buoy more optimistic expectations for growth."

Economic View: Agreement close on PSI with growth-linked bonds likely to be used; Dermot O'Leary, chief economist at Goodbody, comments  -- "Although they have disappointed before, the latest reports suggest that an agreement on burden-sharing between Greece and its creditors is imminent. Greek media report this morning that a coupon of 3.6%-3.7% will be agreed for the new bonds that investors are swapping into, while a 70% NPV loss will be introduced. The final issue that still has to be resolved is a step-up in the coupon on the bonds for investors should growth exceed forecasts over the next number of years. Interestingly, this idea of “growth-linked bonds” was mooted in relation to Ireland by the Irish Central Bank Governor Patrick Honohan in April last year.

From the investors’ point of view, given that they are taking a hit on their investment, it makes sense to push for these safeguards, as, in the case of Greece, investors obviously fear that growth prospects are being underestimated by the Troika. The principal of growth-linked bonds could also apply to some of the loans being provided to other programme countries. Originally, high interest rates on the loans to Ireland, Portugal and Greece made it very difficult to see how these countries could restore debt sustainability. Decisions made at European level last August to reduce interest rates helped, but there is still some merit to looking at the benefits of the proposals in Greece on the official loans.

Greece is far from out of the woods even if agreement on PSI is reached and hard default is avoided. It looks likely that as well as PSI, there will have to be OSI (Official Sector Involvement) at some stage in the future if debt sustainability is to be achieved. That puts the ECB’s holdings of Greek bonds firmly in the spotlight."

Eamonn Hughes, head of research ad Goodbody, made the following comments:

Aer Lingus (Buy, Closing Price €0.87); Aer Lingus Regional model continues to expand: "Aer Lingus has announced that it is extending its venture with Aer Arran, with the latter now operating an additional two routes under the Aer Lingus Regional (ALR) banner. The services will be from Dublin to Bournemouth in the UK and Shannon to Rennes in France.

The extent of the ALR business indicates on-going success from this business model. An update on progress will be next available at the annual results on February 28."

Irish Financials 1; Loan demand remains weak and mortgage standards continue to tighten: "The Central Bank yesterday released its January bank lending survey results. The responses feed into the wider ECB bank lending survey.

In relation to mortgages, the survey responses indicated a tightening of credit standards in Q4, with further tightening anticipated in Q112. Loan demand continued to weaken in Q4. On other personal lending, loan standards were unchanged, though there was still a further decrease in loan demand. On the business side, credit standards were unchanged, but a further decrease in demand from enterprises was recorded. On the funding side, there was a deterioration in retail and wholesale funding for banks in Q4, with access to funding expected to remain broadly unchanged in Q112.

The deterioration in loan demand impacting every asset class is no surprise to us. However, it is interesting to note the anticipated tightening of lending standards in the mortgage space, which presumably doesn’t auger well for lending in Q1. The funding comment strikes us as too negative given the broad stabilisation in deposit levels in Q4 and the opening up of the LTRO issuance during December."


Irish Financials 2; Fitch affirms ratings, negative outlook on Irish banks:
"Fitch yesterday affirmed the ratings of AIB, BOI, IL&P and IBRC. All were on ratings watch negative (RWN), but the affirmation of the ratings removes the RWN threat, imposed on 20 December. However, they still have negative outlooks. The latter reflects the weak macro outlook and the ratings of the banks may suffer if the macro backdrop deteriorates further.

The affirmation of the ratings of the banks is welcome but merely reflects the position of the sovereign’s ratings on January 27.

Economy Is Nothing Like 2008: O'Neill: Jim O'Neill, chairman of Goldman Sachs Asset Management, told CNBC, "we came into the year with people fearing 08 if not worse and the evidence from all over the place is that it is nothing like 08, at the core of the Eurozone is that Germany appears to be accelerating":

US Markets

In New York Wednesday, the Dow rose 83 points or 0.66% to 12,716.

The S&P 500 added 0.89% and the Nasdaq advanced 1.22%.

Asia Markets

The MSCI Asia Pacific Index rose 1.2% Thursday.

Japan's Nikkei 225 gained 0.75%; China’s Shanghai Composite Index climbed 1.96%. South Korea's Kospi index rose 1.26%. Australia's S&P/ASX 200 advanced 1.00% and the Bombay Stock Exchange Sensex 30 index in Mumbai climbed 0.64%

Asia benchmarks

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.05% in early trading Thursday.

The ISEQ has risen by 0.05% in Dublin.

Dragon oil is up 2.29%.


European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3141 and at £0.8304.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Wednesday this week, the BDI fell 18 points or 2.65% to 662 - -  a 25 year low.

Freighter Oversupply Weighs on Shipowners and Banks - - Jan 26, 2012: The New York Times says vessels bought during the global commodity boom are only now being delivered, putting pressure on the European banks that financed the purchases.

The skyscrapers and immaculate beaches of Singapore's seaport look out on one of the world’s largest parking lots: mile after mile of empty cargo ships, as far as the eye can see.

Similar fleets bob at anchor, with empty cargo holds, off the coasts of southeast Malaysia and Hong Kong. And dozens of newly built ships float empty near the giant shipyards of South Korea and China, their owners from all over the world reluctant to accept delivery during one of the worst markets ever for the global shipping industry.

As recently as six weeks ago large freighters that can carry bulk commodities like iron ore or grain were fetching charter rates of $15,000 a day. Now, brokers and owners say, the going rate is $6,000 a day. If any customers can even be found.

Crude oil for February 2012 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $97.17 down 44 cents from Wednesday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $111.88. The North Sea benchmark accounts for two-thirds of the global market.

The margin between the US benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange and Brent is over $14 - - The Globe and Mail says that for the past 10 months, Canadian producers - - whose prices are tied to WTI - - have been taking steep discounts for their oil compared with international crude prices that are benchmarked against North Sea Brent, which can be shipped more readily. In the past, WTI tended to trade at a small premium to Brent, because it is easier to refine.

That spread hit a peak of $28.08 (US) on Oct. 14, but has fallen dramatically since then. After plans for more pipeline capacity at Cushing, Oklahoma, the differential narrowed.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,748.00 up $5.00 from Wednesday's close in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 6.

Check out our new subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

It's a simple fact that in the prevailing economic climate, the provision of high quality content cannot be sustained through advertising alone. 

Business executives who put a premium on time and value high quality information, should use our service.


© Copyright 2011 by Finfacts.com

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